Southeast Asia a Worry in 2013, Economist Says

1/11/2013 3:47AM

Global markets have started 2013 on a bullish note, but that may not continue for the rest of the year. The WSJ's Deborah Kan speaks to Deutsche Bank's Michael Spencer about why some of last year's strongest growth economies will slow down.

This transcript has been automatically generated and may not be 100% accurate.

I ... the ... a lot of talk about how a twenty thirteen may be a weak year for the global economy but those most at risk well joining me now is Michael Spence said chief economist for Asia Pacific at it that Michael thanks much for coming in ... ok outlooks talk about the fiscal cliff because we didn't go over the fiscal clever saying markets rally ... of that you expect a good year ... at least for the start of the U S economy ... will not having all over the cliff is good news from a growth perspective what it what it means though is that ... the US doesn't really on to that question the medium and longer term fiscal sustainability ... and I'm not sure when they're going to answer that question so we've set up a new law they've set up a few deadlines and every in March we need ... new appropriations we need the debt ceiling deal would need to do something about the ... the sequester spending cuts ... and I think what we end up with is a very rancorous partisan chipping away rather than ... one thing a month ago looked possible which was actually a sensible ... compromise meeting in the center so I it is kind of a kicking the can down the rates it is taking a number of cans down the number of course he was elected to ... that of the US are you expecting for twenty eight ... will on the assumption that we don't that they don't generate a real crisis Brock a reason because of the ... annual average growth will look about the same as last year about two percent the story for the US really is starting the year weaken Iran one up an ending the year round three percent growth ... our perspective in a show that ... incremental growth during the years the really important story ... and of course Ametek goes on in the US does impact the Asian market I was talk in particular about China sourcing a lot of strong ... Akshay day that come out of China ... had an inflation rate seems to be there at about where they won it's a twenty make of that growth story in China and what he anticipated for two things ... one day we were bullish on China relative to most people for most of last couple years and I were even more bullish disbursement to let the China story but these ... two things one is ... downshifting in investment demand the release of slowdown in growth over the last couple of years ... and this is a sense of the beginning of musty people suddenly realize they were to be growing ten percent in the head and infantry correction ... and economy is just that we've recovered from that to the ... the underlying growth rate in China seems to be still lead to eight percent ... and a new ad on the benefit from a recovery in the U S and Europe ... that takes Chinese growth from some of seven percent were REO to Denny ... to above nine percent in the year ... from now before things are slow to nine percent by the end of this there are ... a few for you when you could be nine percent the full cost of two thousand fourteen annual average growth is nine percent at ... its very bullish thing the thing is the biggest risk to the Chinese economy ... this year ... I think ... the problem in China as a seat near term the could be of the issue is financial sector reform or lack there of that sort of ... tough way across the river in the current is pretty strong so ... the way that shows up to get with metaphors is ... banks came under pressure a couple of years ago to deliver higher returns to deposit years ... to come do that on deposits because PBOC since the deposit rate ... so they created his wealth management products which are completely non transparent we don't know what Connor risks banks or an on banks' non or taking ... when they take deposit the funds and promise very high returns on those deposits ... that is so the focal point to the issue in China is the state of health of the banking system and whether the government understands ... the reforms are needed ... and those reforms will de stabilize the system so ... the fact that the dominoes the banks the central bank is ahead of this interest in knowing it has to provide liquidity I'm confident we're not talking about a crisis in China but if there is a vulnerability domestically ... it's within the banking system and how will that all can impact the one I'm going for it ... really if they understand the financial sector liberalization is what's needed to use the pop across or become go back ... then we need to look on her ability because at this point what's happened is it's easier for Chinese to get money out of China then for the rest of us the money in ... so copper Thunderbird ability to make it a more level playing field ... as the current account surplus of comedown China is a little bit more vulnerable to these outflows so they need to liberalize allow more info ... but that puts pressure on the Banksy need to de regulate interest rates in China to allow the banks to offer proper returns to default doctors ... through things that are transparent to the regulators through deposits rather than these off balance sheet management and in terms of its exchange rate what would you say ... I think they know our view is that ... in any given year five percent against the U S dollars about the spouses they'll tolerate we are forecasting about a three three percent appreciation ... okay ... so I'm ... as a whole a lot of people rely on credit in the region to um you know when you're expecting what I really the economy's were you anticipate than those who most growth in Asia ... with this too is the thing about the highest growth will mostly come from China and India ... and then within the restoration of the two groups of countries the ... CNX Singapore few will ... will deliver higher Gross was a very stable growth ... in Singapore Hong Kong Taiwan and Korea would he get his exposure to U S and European recovery so be looking for where growth is going to rise ... it's can be the Greater China ... the Singapore group if you're looking for ... just any as she goes ... good strong five percent growth this can be Indonesia Philippines Thailand Malaysia ... ok and what rich economy are you worried about it ... um ... have to say today most worried about in the nation this is an economy where the policy makers of the central bank Diggers over stimulative credit growth is too high the underlying inflationary pressures too rapid ... and the Holy deal structure was too low so ... if inflation or ... say when inflation comes back it's can be very difficult for capital markets the budget actually don't care that really because they indicated to skim off a really good year for her ... the whole CME Group has been the darling of investors for the last two years because it has be given us the stable growth ... because they no longer no longer think investors will be looking for ... a pickup in growth which you can to get to the north Asian markets ... and the Indonesian particular where ... in addition to trying get growth from ... so the six up to seven or eight percent ... and said they over stimulated the cut interest rates too much credit crisis to rapid bond yields are far too low ... and that ... inevitably will correct and it's gonna be a problem for Indonesia one attempt and K interesting to take snapshots for twenty fifteen thanks very much like the Ted Jennings's here and honk on ... for more on that star am you can add that our markets coverage on Des beest dot com I'm Deborah con for The Wall Street Journal digital network